How much to buy: Stock-outs Vs. Over-buying

It has been a retailer’s dilemma for decades now, to decide whether to buy more or to buy less. Buyers try all permutations and combinations but no one really knows exactly ‘how much to buy’. How much to buy, so that none of his inventory goes into the markdowns; how much to buy so that his sell through remains 100%; how much to buy so that he never faces stock-outs… In fact these are all hypothetical situations. Hypothetical, not because they are unachievable but because no-one knows that right ‘Buying Quantity’ to fulfill these conditions. Well, neither do I.

But I know that there two things which if we can achieve we can get pretty close to the above highly desirable hypothetical situation –

·         Make the buying process more responsive

·         Take care of the under-performing inventory

By making the system more responsive, I mean that the buyer must have the ability to reconcile the in-season sale for an option with respect to its current inventory, at regular intervals. This will empower the buyer to take the course correction whenever required. The system should not only account for the selling trends of a certain option but also should get cues from the market/fashion dynamics about the potentially good options. Depending on the above two, the buyer can be in a better position to decide on whether to ask for more/less inventory from the vendor. But this will help the buyers only to a certain level because given the lead times and different supply chain constraints the buyer has to abide some timelines and he cannot buy beyond that.

So, if something has already been bought and is not selling well, what can the buyer do now with this under-performing inventory?

One option is - that the system should also allow the buyer to have the visibility of the planogram of the stores and in case the underperforming option is been displayed at some dead areas of the stores, probably the buyer can suggest the stores to keep it on certain focal points for some time and observe the trends.

And if the above doesn’t work, the buyer can always get the selling trends for that underperforming option from different set/grade of stores (or channels), and he can surely rearrange the option by taking it out from the underperforming set of stores (or channels) and sending them to the performing set of stores (or channels). In case if this also doesn’t work then it is better to keep that option out of shelves and it should be considered for promotions.

Now, all this is no rocket science and people know this more often than not. But Is it that easy to achieve all this? Do we have the right tools to achieve this? I doubt. The planning tools today are more focused upon what buyers ‘want’ instead of what buyers ‘need’. What buyers ‘want’ is a tool which enables them to buy. But what they ‘need’ is a tool that minimizes their markdowns and never lead to the stock-outs (and off-course helps them to buy). The provider who realizes this the earliest will be the one walking tall in future…